This week’s chart highlights the strong link between profit margins and S&P 500 price-to-earnings over the past 20 years. While today’s market sits at higher valuation levels, it’s doing so alongside record‑level corporate profit margins. Historically, elevated valuations have been more durable when earnings strength supports them, as appears to be the case today. This helps explain why markets have continued to post strong returns despite concerns around interest rates and economic uncertainty. Looking ahead, markets are increasingly optimistic that advances in artificial intelligence will drive meaningful productivity gains and help sustain elevated profit margins, potentially supporting higher equity valuations.